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TMI Blog2023 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... l, if the respondent-Department was not satisfied with the explanation, it was for them to have got it verified from the partners. Rather than still pursuing the matter before the appellant s partnership firm, which is otherwise impermissible. In the instant appellant having said that the capital investment is that made by the partners. Applying the aforesaid judicial precedents of M. Venkateshwar Rao [ 2015 (3) TMI 153 - ANDHRA PRADESH HIGH COURT] , M/s. Nova Medicare [ 2023 (3) TMI 218 - TELANGANA HIGH COURT] and Lovely Exports (P) LTD [ 2008 (1) TMI 575 - SC ORDER] the burden now shifts upon the respondent-Department to get it counter verified from the partners from their books of accounts ascertaining whether such investments have been made or not. In the absence of such an enquiry/verification from the partners by the respondent-Department, the order of the Assessing Officer, as also the stand taken by the Hon ble ITAT would not be sustainable and the same deserves to be and is accordingly set aside/quashed. The order passed by the CIT (Appeals) stands affirmed. Decided in favour of assessee. - HON BLE SRI JUSTICE P.SAM KOSHY AND HON BLE SRI JUSTICE LAXMI NARAYANA ALI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Commissioner of Income Tax (Appeals)-2 (for short CIT (Appeals) ), Hyderabad, vide ITA No. 0346/201617. The CIT (Appeals) by its order dated 30.06.2017 allowed the appeal of the appellant holding that the partnership firm is not required to explain the sources of income of the partners in respect of the amount contributed by the partners towards the capital of the firm. 3.4 The said order of the CIT (Appeals) was further subjected to challenge by the respondent-Department by way of an appeal before the Hon ble Income Tax Appellate Tribunal, Hyderabad Bench A , Hyderabad, vide I.T.A. No. 1706/Hyd/2017. The Hon ble ITAT vide its order dated 31.01.2022 reversed the findings of the CIT (Appeals) and in the process, affirmed the order of the Assessing Officer dated 09.11.2016. The Hon ble ITAT also reversed the findings of the CIT (Appeals) so far as deletion of interest payable to the partners of the assessee firm holding that the assessees could not establish very cojent documents so far as the interest paid to the partners of the assessees firm being debited in the profit and loss account of the assessee firm. It is this order of the Hon ble Tribunal which is under challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be not satisfactory, unless (a) The person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) Such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory. Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of Section 10. A plain reading of the aforesaid provision of law would clearly reflect that the said provision of law would be applicable in a situation where, in the course of assessment, the Assessing Officer seeks an explanation from the assessee in respect of certain amounts which are found credited in the books of the assessee firm. And to the said sum, the explanation provided by the assessee was not satisfactory. 6. According to the learned counsel for the appellant, the Hon ble ITAT has erroneously mis-interpreted the provisions of Section 68 of the Act and have also held taxing the credits by the partners in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appellant herein had offered his explanation, which the Assessing Officer did not accept the explanation and passed the assessment order. 10. The said assessment was subjected to challenge by the appellant before the CIT (Appeals). The said Appellate Authority i.e. the CIT (Appeals) vide order dated 30.06.2017 partly allowed the appeal of the appellant and rejected the assessment made by the appellant so far as the capital invested by the partners into the partnership firm. The CIT (Appeals) relied upon the judgement of this High Court in the case of the Commissioner of Income Tax v. M. Venkateshwar Rao and others [2015] 370 ITR 212 (T AP). In the said judgement, the Division Bench of this Court had held that the partnership firm is not required to explain the sources of income of partners so far as the amount contributed by the partners towards the capital of the partnership firm. 11. Aggrieved by the aforesaid order of the CIT (Appeals) dated 30.06.2017, the respondent-Department had preferred the appeal before the Hon ble ITAT, where the case was registered as ITA No. 1706/Hyd/2017. The Hon ble ITAT had reversed the order of the CIT (Appeals) holding that the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court of India also in the case of the Commissioner of Income Tax v. Lovely Exports (P) LTD in a short judgment at paragraph No. 2 held as under: Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961 ? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 15. The ratio laid down in the aforesaid three decisions clearly indicate that if in a proceeding under Section 68 of the Act, the assessee has been able to explain the sources of income, which in the instant case, the appellant had been stating that the capital investment made by the partners of the said firm is sufficient to meet the requirement under Section 68 of the Act. Thereafter, if at all, if the respondent-Department was not satisfied with the explanation, it was for them to have got it verified from the partners. Rather than still pursing the matter before the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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